It isn’t a black swan event, either. A pandemic risk was well-mapped by experts. We just chose to ignore them, all of us. And now we are making an unprecedented public policy choice to shut down the economy.
So, is it like a war? References to World War II encourage feelings of patriotic mobilization. But mobilization is precisely not our goal. Nonessential sectors would be furloughed in a war effort, too, but their workers and plants would likely be rapidly reallocated to war duty. If covid-19 were the kind of disease that required a broad-front medical mobilization, the military analogy might work better. After all, in 2020, health care, at 18 percent, already accounts for a far larger share of the U.S. economy than defense did at the time of Pearl Harbor.
But, except for the overstretched intensive- and respiratory-care units, the health-care system is shutting down, too. Even as medical staff are working to exhaustion and braving risks of infection, their employers, both hospitals and private practices, are facing financial catastrophe.
There are historical analogies to this kind of collective shutdown, but they are not attractive.
In 1914, when Europeans deluded themselves into thinking that the war would be over by Christmas, there was, at first, little mobilization and a rise in unemployment. The disruption was limited in scope and duration. No one dreamed of shutting shops or restaurants.
Grimmer analogies are to wars not won, but lost. The former Soviet Union in the early 1990s comes to mind. But that implosion reflected the disintegration of a failed economic system and stretched over decades.
Sometimes a useful thing for historians to do is to point out when something seems radically new. That is our situation today.
The most optimistic recasting of the present crisis came over the weekend from St. Louis Federal Reserve President James Bullard, who urged his fellow economists to view the output collapse not as something to fight against, but as akin to an investment, an investment in public health, the price for which is paid not in cash but in kind, in the form of enforced idling of labor and capital. This is helpful because it softens the idea of a shutdown into a kind of collective abstention from economic activity and thus opens the optimistic vista of restarting the economy just as it was before.
But though we are about to absorb $2 trillion — nearly one-tenth of last year’s GDP — onto the public balance sheet, and though this will be hailed as the biggest stimulus in history, its impact on the daily struggles of Americans amid the coming pandemic recession is uncertain.
An alarmingly large percentage of American families live paycheck to paycheck. Their margins of safety are so slim that even a brief period of reduced hours has long-term catastrophic effects. What savings they have will evaporate. Making them “whole,” as well-heeled people like to say, will be extremely difficult. They were not whole to start with. Millions of people work in businesses that are similarly on the boundary between life and death. Checks for $1,200 and small-business loans are not going to fix that. It will not be enough for them to survive.
In a crisis, credit is crucial. It is the way economies bridge time. Faced with the coronavirus, some creditors will behave responsibly, playing their parts in absorbing some of the loss. But not all will. Not all can. They themselves are under acute financial pressure. That is what is rocking the financial markets.
Economists recognize that you can’t undo the damage done by these kinds of shocks. They call it scarring. To have minimized this, we would have needed to prepare the financial world for the lockdown six weeks ago and have rolled it out comprehensively, with forewarning. We have already blown our chances of that. Estimates suggest a record-breaking 3.4 million Americans filed for unemployment last week, and this week’s total will surely be higher. Each of those layoffs creates lasting damage.
And then think about the politics, first of fighting this virus and then recovering from it. In a fantasy world, it is possible to imagine that smoothly injecting $2 trillion into the U.S. economy would be the beginning of a healthy national debate about priorities and where to go from here.
But does that sound like the United States, not just in 2020 but any time in the past few decades?
We are where we are because we were too slow, because we allowed the virus to overwhelm us, because the resources of our government have been gutted and because our politics are dysfunctional.
In our circumstances, historical analogies can easily become a form of dangerous nostalgia.
This isn’t 1914. It isn’t 1941. It isn’t even 2008.
It is 2020. So expect all hell to break loose.